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Wednesday, April 23, 2003

On the Inconveniences of Meddling

Sunday I wrote: "When you meddle you destabilise, and when you destabilise you don't know (and can't in principle predict) the consequences...". Minute Man has sent me some critical feedback. His point and my reply:

Well, that assumes that the situation was stable prior to meddling. Eastern Europe was a demographic disaster area long before 1989. for that matter, Western Europe is a demographic disaster - if your tables included France, Spain, Italy, and Germany, I don't think they would stand out as significantly better than the Eastern bloc.

Anyway, Iraq (if it is like the rest of the mid-east) is much younger and, one hopes, more energetic.

Of course Eastern Europe wasn't stable before, and of course things needed changing. My point is the whole homeostatic theory is bunk. You can't massively intervene (which is not leaving things to market forces) and then assume everything will find a nice equilibrium.The eastern transition process has produced a nightmare, and no-one is even reflecting on it. Russia has been left in the hands of gangsters with the only known exports being oil and prostitutes. So, like Fox TV, we move on to the next spectacle. I don't think this is going to work.In fact you are wrong, the eastern demography is significantly worse. You may remember that I am pretty critical of the anti-immigration mentality of most west European states, and I think the growth and stability pact is pretty much a non runner because of the debt situation produced by the demographics.

The point is I'm afraid, we need theory to understand this, wishful thinking just won't work. The EU countries (without the enlargement) the US and Japan are all more or less in a line, which is now being followed by eg the Asian tigers, then behind this are coming (roughly speaking) Brazil, Mexico, India... Special cases are Eastern Europe and China. This is probably because of the early entry of women into the labour market and then economic implosion (in the Eastern Europe case) and social engineering population manipulation (in the Chinese one).

The more I study this topic, the more I realise that the classical economists understood more than our neo-classical contemporaries. The economic consequences are going to be enormous. In particular, if there is a 'demographic transition', (for example from 3-4 children per female to below 1.5, remember once you strip out immigration all 'developed' societies are now below 1.5, and, more frighteningly, it seems that as growth slows down, and societies get older and relatively poorer, this number may deteriorate rather than improve) it seems the more rapidly you make it the worse the resulting situation. This is why the case of Spain and Italy in the EU is so important, or S Korea in Asia. This may tell us what we can expect to see in Mexico, Brazil, India etc 20 to 30 years from now.

On Iraq, I entirely agree, it is much younger. Whether it is more energetic after years and years of one-party rule remains to be seen. On the demographic front, obviously it would make sense for the EU to incorporate not only Turkey, but also Iraq and Iran (this would also help do something about our oil shortage!!). I think the problems in Iraq are primarily political, but this is beyond my competence, and anyway there are already plenty of commentaries on this to suit every opinion. My point is more fundamental. If we reject the complex adaptive system 'ermergence' hands-off (or if you prefer hidden-hand) approach and go in for massive interventions, we shouldn't be surprised if we get the results we don't expect. This, after all, is the principle argument against state manipulated economies: whether in France, Russia, or Iraq.

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